Ousted Furniture Brands executives seek help with legal costs

Dec. 09, 2013 @ 06:41 PM

Two of the top former executives of Furniture Brands International want a bankruptcy court’s permission for an insurance policy to pay their legal costs in lawsuits filed by shareholders.

The insurance policy provides up to $15 million of coverage, including for legal fees and other expenses, in case of securities claims against Furniture Brands, according to a document filed Thursday in U.S. Bankruptcy Court in Delaware by lawyers for former chief executive officer Ralph Scozzafava and former chief financial officer Vance Johnston.

In the weeks before and after Furniture Brands filed for bankruptcy in September, several shareholders filed lawsuits alleging that top executives made positive statements that didn’t accurately reflect the company’s financial problems. A class-action lawsuit filed in October said that Scozzafava and Johnston “fraudulently inflated” the company’s stock price by making false and misleading statements about the company’s financial status before Aug. 6, when the company said in its second-quarter earning report that it was facing financial problems.

Furniture Brands filed for Chapter 11 bankruptcy protection Sept. 9.

KPS Capital Partners bought most of the assets of Furniture Brands Nov. 22 and has placed them under a new company, Heritage Home Group. The company announced Scozzafava’s resignation Nov. 25, and Johnston was dismissed later that week.

The bankruptcy court is still supervising the winding down of the Furniture Brands estate, now called FBI Wind Down Inc. The insurance policy is considered property of the estate, so the court’s permission is required before the insurance company can make any payments set out by the policy.

Anyone objecting to allowing the insurance payments must file the objection in court by Dec. 20. A hearing is scheduled for Jan. 7.